In February, we analyzed visitation trends across the self-storage facilities to see if this category was continuing its pandemic-related momentum, where consumers looked to downsize their living spaces and store their excess belongings. As we pointed out in that analysis, visitation trends for self-storage chains have remained ahead of pre-pandemic levels, but we’ve started to see some moderation as consumer behavior normalizes.
Last week, we discussed that consolidation and rightsizing was likely to become a more meaningful theme across the retail and commercial real estate industry in 2022 as visitation trends moderate and companies are looking to maximize the returns on their physical assets. Not surprising, ExtraSpace Storage made a major acquisition this past week by buying Life Storage for $1.3 billion. This acquisition will make Extra Space Storage the largest self-storage company in the U.S. with over 3,500 locations, 264 million square feet of properties, and over 3 million customers. The combined company will surpass Public Storage, which has over 2,500 properties and 2.4 billion square feet of rentable space. The management teams of the ExtraSpace and Life Storage cited the scale benefits, increased geographic diversification (increased presence in growth markets like Texas, Florida, and Southeast states like Georgia, South Carolina, Tennessee, Alabama, and Mississippi, and reduced dependence on California, the Mid-Atlantic, and Midwest), $100M in “operating synergies” (reduced corporate overheard and property operating expenses, improved operating revenue and tenant insurance income), and other growth drivers (including third-party management, joint venture and bridge loan platforms) as rationale for the transaction.
We would expect further consolidation in the industry in the months to come, as the self storage industry remains highly fragmented with many smaller operators and regional players. According to ExtraSpace Storage’s March 2023 Company Presentation, the largest five players (including the combined ExtraSpace and Life Storage) represented just 35% of total self-storage square footage in 2022, with another 45% coming from non-REIT institutional quality properties. We expect more acquisitions among this group, with Public Storage (Life Storage rejected Public Storage’s $11B bid in February), CubeSmart, and U-Haul representing the most likely consolidators.
